Does Canada need an energy champion?Baystreet.ca
As CNOOC Ltd. unveiled its takeover bid for Nexen Inc. in Calgary last week, the Chinese government was barring overseas companies from bidding directly in an auction for a piece of China's shale gas reserves, estimated to be one of the largest in the world. Foreign players were only allowed in via joint ventures with local companies, ensuring they play second fiddle to domestic producers. Bear in mind that China desperately needs Big Oil as its companies have little experience in drilling for shale. Still, it didn't swing the door wide open.
While Canada puts out the welcome mat for global companies to invest in its resources and buy out its companies, it appears the rest of the world isn't playing by the same, open rules.
It's not a strategy peculiar to China. Across the world, major oil-producing countries beef up and are biased toward domestic producers even if they allow foreign players to enter the market. Leaving OPEC producers aside, even the Western energy-producing countries have a national champion or flagship energy company, although they often don't have full control over their affairs: BP PLC (U.K.), Statoil (Norway), Total SA (France), Eni SpA (Italy) were all carefully nurtured by their governments for decades before they became global powerhouses.
Meanwhile, in Canada the only thing separating the likes of Suncor Energy Inc., Encana Corp. and Canadian Natural Resources Ltd. from their international buyers is the spectre of 'net economic benefit' that can be invoked by the federal government.
Given Canada's open-for-business culture, these companies might appear to be easy takeover targets for the companies above them in the list. That raises the question whether the country with the world's third-largest oil reserves and fifth-biggest production should perennially play the role of prey for others to pounce on?
The question on many people's mind is: If the federal government approves CNOOC-Nexen deal, which company could be next Suncor Energy, Encana, Canadian Natural Resources or Talisman Energy Inc.? Could we find ourselves in a situation where all Canadian companies end up in foreign hands, and is it necessarily a bad thing?
Proponents of free markets contend that industry dynamics should dictate deal flow rather than any overriding protectionist government strategy.
To be sure, nobody is suggesting a return to government-run enterprises in Canada, or a Maple Group-like takeover of TMX Group, but there may be value in beefing up existing domestic companies, even encouraging mergers within.
"On the one hand, Canadians should be proud of our relatively hands-off approach," says Robert Roach, chief economist at Canada West Foundation. "On the other hand, this puts us at a disadvantage as other countries can use their state-owned enterprises to pursue their national energy interests in ways that Canada cannot. So what can we do? How can we compensate for the fact the world is not playing fair?"
Roach suggests a review of foreign investment goals, and that we need to think how provincial governments can work together to promote Canadian energy interests without relying on a state-owned flagship company.
Another expert, however, says the country could be the Wimbledon of the oil-and- gas industry, in reference to the iconic British tennis tournament that is prized by the world's best but has not been won by a local player for more than half a century. "We can build a fantastic platform where others can come and play."
While playing the role of welcoming host has paid dividends for Canada in terms of technological innovation, jobs and foreign investment, it is possible that sometimes the guests may not turn up or make a quick exit as they are engaged elsewhere: For example, stung by the Gulf of Mexico oil spill, BP sold much of its perfectly feasible Canadian business to pay for fines in the United States.
Still, the narrow focus and relatively small asset base mean Canadian energy companies can sometimes appear somewhat unsure of themselves. As Encana chief executive Randy Eresman told Reuters: I always feel that the company is at risk of being acquired.
Should Canadian companies always be looking over their shoulders and compete as dwarves in the company of giants? If Canada is to have a powerful energy sector it's perhaps not unreasonable to suggest a few major home-grown powerhouses compete with the likes of CNOOC on home turf. Now, that would be a level playing field.